Source: Image of stack of paper, arrow, images by Video Scribe, License held by Jeff Carroll; Image of sales forecast, Creative Commons, http://bit.ly/1ikxaGN.
Hi, I'm Jeff, and in this lesson, we'll discuss the basic parts of a business plan and why they are essential to the success of a business. So let's get started.
A business plan is a document that outlines the plan for a business. All small businesses should have a plan because it is a tool that provides communication. It can be used to obtain funding for a business. Management, it helps set up monitoring and tracking goals. And planning, it provides timelines and milestones so you can judge success or failure. You can also see whether you're meeting your goals of growth.
A business plan has three main parts-- goals and objectives, sales forecast, and a financial plan. It may also include other information like product descriptions, marketing plan, and product differentiation. Without a business plan, there is no way to judge your business against objective criteria. A business plan does not guarantee success, but operating without a plan is a likely reason for business failure.
As we said, the business plan should have goals and objectives. One way to develop strong goals is using the acronym SMART. SMART stands for specific, measurable, achievable, relevant, and timely. Small businesses should have goals and objectives that describe the products and/or services they we'll be selling and outline how those products or services will impact the marketplace.
For example, if you are starting a company that manufactures shoes for teenagers, a SMART objective might be to create a shoe that begins selling during fall and targets boys aged 13 through 18 that achieves a market share of greater than 1%, that meets this goal with an investment of $200,000, where this percentage and timetable are comparable to other shoe manufacturers, and that meets this goal within one year. That is a SMART goal.
The business plan should also have a sales forecast. Sales forecasting will provide research on the current market, help those who read it understand the financial strengths and weaknesses of the business, and predict how the business will compete in the marketplace. Here is an example of a sales forecast.
Notice how it breaks down sales by time period. There is a difference between short-term and long-term forecasting. This is an example of a short-term forecast because it only goes out for one year.
However, long-term forecasts could go out for five or even 10 years. But no matter what a sales forecast should be validated and well researched. This is often done by comparing the sales for your small business to comparable small businesses just as we've done here in this example.
Finally, a business plan should include the financial plan. The financial plan should provide a summary of what investment is needed for the business, a break even analysis, and a revenue projection that takes into account the sales forecast.
If your a small business wishes to receive venture capital, then those companies would certainly want to see this information before providing any funding. Venture capital is a type of funding provided to startup firms and small businesses that investors believe have the chance to grow and become something much larger in the future. Some startup businesses must have venture capital because standard funding has such high initial costs and access may not be available to new small businesses.
Small businesses can also raise capital through small business investment companies. The SBIC program was created by Congress in 1958 to help small US companies raise capital. SBICs are privately organized and managed venture capital firms licensed by the US Small Business Administration. They make equity capital or long-term loans with maturities of at least five years available to small companies.
Nicely done. In this lesson, we learned about the basic parts of a business plan including the goals and objectives, the sales forecast, and the financial plan. Thanks for your time and have a great day.